Corporate ecology urged in China

By Zhang Qi (China Daily)
Updated: 2007-12-31 17:27

In addition to prices, earnings ratios and dividends, there is now another benchmark for stock market investors to watch - corporate environmental performance.

The State Environmental Protection Administration (SEPA) is proposing to force publicly listed companies to regularly disclose environmental information through new rules that could be finalized in the next six months, Ge Chazhong, an official affiliated with the SEPA says in a telephone interview.

The latest requirement comes not long after environmental disclosure and inspection regulations were strengthened for companies applying for IPOs.

Companies that plan to go public are required by China's existing securities regulations to guarantee environmental details along with financial records for the 36 months preceding an IPO.

SEPA officials are now working on specific terms for compulsory corporate environmental disclosure in already-listed companies, Ge says, adding the SEPA is seeking cooperation with the China Securities Regulatory Commission (CSRC) to develop a new set of regulations by mid-2008.

Environmental disclosures by publicly listed companies could have far-reaching impacts as most are large enterprises.

"At present, many multinationals voluntarily release environmental information," says Guo Peiyan, an expert on sustainability reports from Tsinghua University.

"Only when environmental information directly influences investment decisions can companies be forced to get more involved in environmental disclosures," he says.

"We are now seeing many international companies releasing environment-related information in their annual reports because they not only take it as a part of a company's social responsibilities but also regard it as relevant to cost savings, long-term financial performance and reputation," he adds.

One example is the Dow Jones Sustainability Indexes, based on a comprehensive assessment of corporate economic, environmental and social performance. Their data now influence investment decisions of asset managers in 14 countries .

Another measure is the KPMG international survey on corporate responsibility that was released in 2005, the latest in the global advisory firm's triennial reports that began in 1993. It evaluates the top 250 companies in the Fortune 500, known as the GFT 250, and the top 100 companies in 16 countries, termed the N100.

Survey results show that there has been a significant increase in the number of companies issuing environmental or sustainability reports along with their annual financial reports.

In 2005, 64 percent of the GFT250 and 41 percent of the N100 companies released such reports, compared to 45 percent and 28 percent in 2002 respectively.

"There is a trend that more and more companies are willing to make environmental disclosures," Guo says.

And that is also happening in China.

Just a week ago, Shenzhen Securities Information Co announced that it joined with Tianjin Teda Co to start the first social responsibility index in the domestic capital market - the Teda Environmental Protection Index - which is expected to be formally launched on the first trading day of 2008.

While the move is welcomed, Guo says international companies have a far better understanding of environmental issues and are more likely to disclose related information.

At a recent forum on environmental protection and financial services in Beijing, Ge from the SEPA criticized Chinese listed companies for their generally poor environmental disclosures, containing only "qualitative descriptions" and "scanty information".

Ge and his colleagues researched the annual reports of 200 Chinese public companies in 2006, finding that only half mentioned the environment and none released specific data on emissions or investment in pollution controls.

Some annual reports included "just a few characters" or "a dozen or so characters" on their environmental efforts, he says.

Not surprisingly, environment-related companies fared much better. More than 80 percent released environmental information in their annual reports, compared to 20 percent in non-environmental industries.

But in the future, the SEPA and the CSRC will mandate that all public companies provide detailed environmental disclosures in their annual reports.

In addition to financial data, public companies will have to report their key emission indexes, such as on sulfur dioxide and chemical oxygen demand, along with records and goals in energy efficiency and cutting emissions.

If companies fail to comply with the Environmental Protection Law and government regulations or choose to release false information, they will be subject to legal sanctions and blacklisted on government websites, such as those of the SEPA and the CSRC.

"Corporate environmental reporting and disclosure are still at an initial stage in China and need further development in parallel with improvement of corporate governance and increasing public awareness on sustainable development," says Guo.

"With both central and local governments viewing sustainable development as a priority, and financial results increasingly related to environmental performance, we are likely to see more demand for environmental reporting and disclosure - and a switch from pressure-oriented to market-oriented compliance."

(For more biz stories, please visit Industry Updates)

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